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Negotiable Instruments — Banking Questions & Practice

Practise 15 Negotiable Instruments questions from Banking for competitive exams such as UPSC, Banking, SSC and Railway. Read the worked questions below, check every answer with an explanation, and track what you get wrong.

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Practice questions on Negotiable Instruments — with answers

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1. Which of the following best defines a 'Bill of Exchange'?

AA written order by the drawer to the drawee to pay a specified sum of money to a specified person on a specified date
BA cheque payable only to the specific person named on it or to their order (via endorsement)
CA cheque bearing a date earlier than the date on which it is actually issued
DA cheque with two parallel transverse lines on its face, which can only be deposited into a bank account and not encashed at the counter

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Answer: A

A 'Bill of Exchange': A written order by the drawer to the drawee to pay a specified sum of money to a specified person on a specified date.

2. Which of the following best defines a 'Promissory Note'?

AA written order by the drawer to the drawee to pay a specified sum of money to a specified person on a specified date
BA pre-paid negotiable instrument issued by a bank, directing another branch of the same bank to pay a specified sum to the payee
CA written promise by one party (maker) to pay a certain sum of money to another party (payee) on demand or at a fixed future date
DA written, unconditional order to a bank to pay a specified sum of money to a specified person or bearer, payable on demand

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Answer: C

A 'Promissory Note': A written promise by one party (maker) to pay a certain sum of money to another party (payee) on demand or at a fixed future date.

3. Which of the following best defines a 'Order Cheque'?

AA cheque with two parallel transverse lines on its face, which can only be deposited into a bank account and not encashed at the counter
BA written, unconditional order to a bank to pay a specified sum of money to a specified person or bearer, payable on demand
CA cheque payable only to the specific person named on it or to their order (via endorsement)
DA written order by the drawer to the drawee to pay a specified sum of money to a specified person on a specified date

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Answer: C

A 'Order Cheque': A cheque payable only to the specific person named on it or to their order (via endorsement).

4. Which of the following best defines a 'Stale Cheque'?

AA cheque payable only to the specific person named on it or to their order (via endorsement)
BA cheque that is presented for payment after the validity period (usually 3 months from date of issue) has expired
CA written promise by one party (maker) to pay a certain sum of money to another party (payee) on demand or at a fixed future date
DA pre-paid negotiable instrument issued by a bank, directing another branch of the same bank to pay a specified sum to the payee

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Answer: B

A 'Stale Cheque': A cheque that is presented for payment after the validity period (usually 3 months from date of issue) has expired.

5. Which of the following best defines a 'Ante-Dated Cheque'?

AA written order by the drawer to the drawee to pay a specified sum of money to a specified person on a specified date
BA cheque bearing a date later than the date of issue, which cannot be honoured before that date
CA cheque bearing a date earlier than the date on which it is actually issued
DA written promise by one party (maker) to pay a certain sum of money to another party (payee) on demand or at a fixed future date

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Answer: C

A 'Ante-Dated Cheque': A cheque bearing a date earlier than the date on which it is actually issued.

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Negotiable Instruments — Banking Questions & Practice

Practice questions on Negotiable Instruments — with answers

1. Which of the following best defines a 'Bill of Exchange'?

2. Which of the following best defines a 'Promissory Note'?

3. Which of the following best defines a 'Order Cheque'?

4. Which of the following best defines a 'Stale Cheque'?

5. Which of the following best defines a 'Ante-Dated Cheque'?

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